Act 46 spending caps proving frustrating for some school boards

A provision in the state's new education law that was meant to hold down property taxes could cause some school districts severe financial hardship or force severe cuts.

According to union officials, the head of the Vermont ACLU and politicians, including some who supported the law's passage, the provision outlining the "allowable growth percentage" needs to be changed. According to Joel Cook, executive director of the Vermont chapter of the National Education Association, the spending caps were put in the bill in the last hours – without testimony – before it passed.

The new education law, Act 46, is "full of righteous and good rhetoric on improving the quality of education and making sure every student has an equal opportunity to it, but by design or effect this mechanism will force school districts to make the terrible decision to tax people more or to slash programs," and that hurts kids, said Cook.

The "allowable growth percentage" is a mechanism in the new education law that determines how much a school district can spend in FY 2017 and it is causing school boards much consternation as they try to put together next year's budgets. There are real concerns that it could cause some districts taxes to go up and it may erode education quality in those that keep the budgetary line.

Allowable growth for education spending is between 0 percent and 5.5 percent based on how much a school district spent the previous year. The more a school district spends per equalized student in the prior year, the lower the allowable growth rate for the following year. And if a district goes over that line, they trigger a double tax on the extra dollars spent.

They also will no longer be allowed to borrow money for operating costs, so if a boiler breaks down or the roof starts to leak the district can't get help from the state. The provision is in place for two fiscal years and is meant to hold the growth of statewide education spending to 2 percent. (Agency of Education fact sheet)

"Simple arithmetic will tell anyone who pays attention that the net effect in 2017 is a property tax increase," said Cook, who doesn't believe that was the Legislature's intent.

Before Act 46 Vermont had a uniform school spending threshold that was relatively high. Towns that chose to spend more were penalized. Only a dozen of the top spending districts were penalized, according to Cook, but the new law applies a fine to every school district irrespective of spending levels or program needs.

"For several years, school boards have presented very lean budgets to their communities and have made very, very difficult decisions in order to do that. In many places there is not much room to move without getting into cuts that are going to damage quality," said Nicole Mace, executive director of the Vermont School Boards Association.

The previous spending thresholds were legal, but Allen Gilbert of the Vermont ACLU says that the allowable growth rate is not because it "prevents schools from having an equitable draw on school funds. The excess spending provision did not do that unless schools hit what the state considered a high threshold that was unjustified."

Lawmakers from the House Committee on Education will meet Wednesday in Montpelier to hear testimony on various glitches school districts have run into as they attempt to implement Act 46. The allowable growth rates will be on the agenda, according to Rep. David Sharpe, D-Bristol, chair of the House Committee on Education.

As school boards get into the nitty gritty of budgeting, addressing their largest costs – salaries and benefits – within the confines of their allowable rates is causing alarm, particularly because they face a non-negotiable 7.9 percent increase in health care costs.

That eats up about 60 percent of the statewide 2 percent allowable growth rate, according to Mace. She said that this rate "is included in collective bargaining agreements and boards have no ability to change it mid-year."

Each year the board of the Vermont Education Health Initiative proposes an annual premium rate increase to the Department of Financial Regulation for approval. School districts that are currently in contract negotiations can try to bargain for employees to pick up a bigger share of the premium, but the federal ACA won't allow the premium share to change by more than 5 percentage points. Premium shares are notoriously difficult to negotiate, according to Mace.

"Collective bargaining is in place in a significant number of districts and they have little room to respond if they agreed to salary and health insurance that exceed their allowable growth threshold. School districts cannot respond immediately to cost containment measures," Mace said.

The Norwich School District's allowable growth rate for this year is 1.22 percent. They have a previously signed contract that increases teacher and staff pay by 3 plus percent and they are bound to the 7.9 percent increase in health care. The two together will make it difficult to stay under the allowable growth rate.

"The problem is that there are any number of fixed cost items in your budget that you don't have much control over, such as negotiated settlements with your teachers, support staff, fuel costs, bus service," explained Neil O'Dell, chair of the school board. "We look at what's fixed, the ones we can't control and see what kind of an impact that will have and work backwards from there." Ultimately, board members get creative with the budgeting scythe, cutting capital repairs and putting off other non-essential costs, hoping no emergencies crop up as a result.

"We may be bad off but there are other districts that are far worse off," O'Dell said. In school districts where the cuts run deeper, programming and staff will take a hit.

U-32 in East Montpelier is looking to cut $300,000 from expected expenses for fiscal year 2017. "The bottom line for U-32 is that our allowable increase will be an estimated $169,492 or about a 1.5 percent increase," school board member Adrienne Magida said. They are asking the community to provide input as they approach some difficult decisions.

Towns that operate K-6 or K-8 schools and tuition their students in upper grades are worried about increases at the middle and high school levels because, they say, it may force them to cut into their elementary school operating budgets if they want to stay within their allowable growth rate.

"They are bound by law to pay the tuition that is charged to them either by a public school or one of the independent schools," explained Mace. "The only place boards have to go to cut is the elementary school district budget. There are school board members that are extremely concerned about what that means for their elementary school."

In Lyndon, school boards recently met with the heads of the Lyndon Institute and St. Johnsbury Academy to implore them to keep any tuition increases as low as possible. This year, tuition to St. Johnsbury Academy is $15,995, and $16,740 for Lyndon Institute. Each $800 increase in tuition per high school student will result in a $510 decrease in what can be spent at the K-8 level, Nancy Blankenship, chair of the Lyndon Town School Board told the Caledonia Record. Lyndon is also facing fixed costs associated with previously negotiated contracts for pay and health insurance culminating in an 11 percent increase.

In Franklin West Supervisory Union, Superintendent Ned Kirsch is worried about implementing Act 166 – the universal Pre-K law that provides 10 hours of early education for all 4- and 5-year-olds – while complying with the allowable growth rate. Kirsch says FWSU has a relatively high growth rate due to years of maintaining low per-pupil spending, but they will be hard-pressed not to tap into the elementary school budgets if they make the adjustments needed to meet the demands of Act 166.

There are three schools in the member districts and they all have established Pre-K programs. But they are going to need to build out their programs to meet the 10-hour requirement. To add teachers and extend the school day as well as move and upgrade classrooms just at Bellows Free Academy, Kirsch expects a bill of $125,000. (That is without adding in a much needed bus program to ensure equity.)

"Clearly, 'allowable growth' does not allow for the necessary growth of our early education programs," Kirsch said. "Even with the high caps, we anticipate cutting from the regular K-12 budget in order to comply with this mandate. We will literally have to 'rob Peter to pay Paul.'"

People are beginning to see the impact that these caps will have on property taxes and the ability to deliver a quality education to all of their students, according to the ACLU's Gilbert. "It is no longer a theoretical debate as it was in May. Now it's a real discussion about how schools are going to meet this provision if they can, staying under the cap, and they are finding out it is going to be very difficult for some of them," he said.

Gilbert has written that the "allowable growth rate" mechanism in Act 46 directly violates the Brigham decision. "Such financial punishments – upsetting equal access to school funds – are a direct violation of the core equity principle in the Vermont Supreme Court's 1997 Brigham decision," he wrote to Gov. Peter Shumlin after the law passed. Gilbert has also presented his arguments to the secretary of the Agency of Education, the State Board of Education and Speaker of the House Shap Smith.

This type of blunt instrument isn't necessary, Gilbert said, and it could drive some schools into a death spiral if they end up with a broken broiler or the wood chip heating fails and they all of the sudden have to spend a lot of money because they have no choice but to stay open "they will have a real problem if they have to pay double once they reach their cap."

Gilbert and the ACLU have threatened a lawsuit after Town Meeting Day, but he is hopeful that it won't be necessary. "We are hoping the Legislature will fix this. We would much prefer not having to go to court. The question is very clear what the legislation should do and we hope they will repeal the caps."

At several forums, many candidates for governor have spoken of the need to make changes to Act 46, including the spending caps. Shumlin has also said "tweaks" should be made.

But school districts are building their budgets now and the Legislature doesn't resume until January. Still, there is hope that next week's meeting will lead to options that could be voted on at the start of the legislative session.

"The sooner they take legislative action or send a signal that there is agreement to move in a particular direction the better. Budgets have to go to the printer in January. That's why I'm pleased the committee is getting together next week – action needs to be taken as the first order of business when they reconvene in January to be useful this year," Mace said.

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